The two EMA cross strategy

An EMA cross day trading strategy

All traders are familiar with strategies based on crossing moving averages (EMA). The logic is simple, the charts look good... but getting consistently good results from a moving average cross is not that simple.

German trader and trading coach Frank Sohlleder seems to have found a solution: the Two EMA Cross strategy. It is a day trading strategy based on 5-minute charts. Sohlleder's criteria to identify potential entry and exit points appear very robust.

Trading an EMA cross

Every trader instinctively understands an EMA cross strategy. They are trend following strategies. The trader uses two moving averages, a 'fast' and a 'slow'. The fast EMA is calculated over a shorter period of time. Its value is therefore recalculated more frequently. This is why it is called the 'fast' EMA.

The important moment is when an EMA cross occurs. Fast above slow is bullish. Fast below slow is bearish. Simply taking every EMA cross as a trading signal does not work. Filter criteria and entry timing are needed.

This example shows a 10-year back test of the Two EMA Cross strategy on the DAX. The equity curve is positive. It would indicate trader Frank Sohlleder identified a good set of criteria to select the best EMA crosses.

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EMA cross trading signals

The Two EMA Cross strategy uses the RSI indicator to measure the strength of price movements. The EMA cross is indicated in the chart but it is not the signal.

A buy signal occurs when after a bullish cross...

• the RSI was above 80
• the market pulls back below the fast EMA.

This example shows a buy signal. The bullish cross (first requirement) is highlighted in blue. Afterwards the RSI reached the 80 level (second requirement). From that moment the background of the RSI changes its colour to blue. After the first pullback to the fast EMA (third requirement) a buy signal was triggered. The signal is indicated by the green background.

A short sell signal occurs when after a bearish cross...

• the RSI was below 20
• the market pulls back above the fast EMA.

This example shows a short sell signal. The initial cross (first requirement) is highlighted in blue. Afterwards the RSI reached the 20 level (second requirement). From that moment the background of the RSI changes its colour to blue. After the first pullback above the fast EMA (third requirement) a short sell signal was triggered. The signal is indicated by the red background.

Taking profit

Open positions are closed by a stop loss order. The stop loss order uses a unique NanoTrader functionality, which allows the stop loss order to automatically follow the slow EMA. The Two EMA Cross strategy does not use a profit target.

This example shows a buy signal. The stop loss order is automatically placed 2 ticks below the slow EMA. Notice how the order automatically follows the slow EMA.

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Follow these steps in NanoTrader Full:

1. Open the chart of the instrument you want to trade.

2. Select "WHS Two-Ema" in the "WHS Strategies" folder.

3. Activate "TradeGuard+AutoOrder" in the chart to trade semi-automatically or "AutoOrder" to trade automatically.

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